‘Data center industry will see good days for next 10 years’

by | May 13, 2016

The data center business is witnessing a boom in India. This is due to the entry of MNCs, the growth in startups, the government’s Digital India initiatives and other factors. Indian data center companies have big plans to expand their businesses and build new data centers, or go the acquisition route.

In an exclusive interview with DIGITAL CREED, Sunil Gupta, Executive Director & President, Netmagic Solutions tells Brian Pereira why he is so optimistic. He also reveals the secrets of the trade and tells us what it takes to succeed in the data center space.

{ See VIDEO at the end of this story }

Q. You set up your fifth data center in Mumbai (DC 5) in Oct 2015 and already, it has achieved 60 percent utilization by various customers. Why is there a huge demand for data centers now?

Sunil: I would attribute it to the economic environment in the country; there are multiple business and technology drivers to this scenario. The economic environment in the country, in the overall global scenario, is far better than other countries. The Indian economy is not export-oriented and it was always consumption oriented – Indian products can be consumed within the country itself.

There is a rising middle-class with higher disposable income.

All MNCs want to participate in India’s growth and start their operations in the Country. However, to set up operations, they will need to have the IT infrastructure. For instance, e-commerce companies that are coming in will need a huge IT setup; with the availability of high-quality data centers in India, they don’t depend on data centers in Singapore or the US.
So a large part of my customer base comprises global MNCs.

The other factor is we now have a government, that is hugely focussed on economic growth. The government is committed to becoming IT savvy and believes that the private sector will drive the country’s economic growth.

We are hosting some of the government’s critical projects that are part of the Digital India initiative. So this will lead to growth of data centers, as the data will need to be centrally computed and stored.

The third point is the startup momentum in India. The new breed of startups do not have the time to set up IT infrastructure like the traditional enterprises. They do not have the time or capital to set up backend infrastructure – and they just want to focus on their core business, outsourcing the rest.

So the startup phenomenon is driving the growth of data centers in India.

The fourth driver is enterprises in India are now more aware about business continuity, disaster recovery — and are adopting new technologies such as big data, analytics and IoT. I see this as a huge opportunity for data centers because data captured from various sources needs to be stored centrally. It will get analysed, and that means compute power is required. And the insights derived will be applied to generate more business. Where will that business happen? All this will happen in data centers.

So all these technology and business drivers are leading to growth and demand for data centers.

I believe this industry will see good days for the next 10 years.

We are able to offer scalability to all the global players that are coming in. We are making better data centers and all this is leading to our growth. Thanks to our parent company NTTCom that provides us a capital back-up.

Q. In the past three years I have seen many data center businesses in India either struggling to survive or being acquired or up on the block for sale. Why did this happen? And what are the crucial elements required to have a sustainable data center business in India?

Sunil: The key mistake made by many of the new entrants is that they think data center is a real estate business. Even if you run a basic colocation service, data center is a hugely technical business. You are hosting a customer’s IT environment and applications. If this is down for even a minute, it will result in a huge irreparable loss to his business and reputation. Every aspect of a data center requires deep knowledge about what the customer is doing and how that correlates to the services you are going to deliver in your data center.

It’s not only about designing the building and real estate – but you need to understand the customer application environment, the business requirements, and the underlying IT infrastructure in terms of compute, storage, networking, security etc. You also need to understand the underlying building layers, which are very different from a commercial building.

Secondly, this is a hugely capital intensive business. The upfront investment is not small. You have to invest upfront in assets such as land, the building — and in utilities like power, cooling, physical security, etc. You then wait for customers to come in and you get returns after a period of a few years. You need to have sustainability capacity to wait for the money to come in.

Every large customer would like to see the building completed and the data center should be fully operational. They would like to see your data center tested thoroughly and operational – only then they would commit business to you. So you can’t make a sample flat like a builder and sell on the basis of that. That would be a wrong presumption.

Normally, the cycles of contracting and then taking up data center space or services can be longer for large customers. This would be like upgradation of their IT environment. There has to be sustainability and capacity with the service provider.

The third misconception is data center business only caters to colocation services. This will not work in India because we are a cost sensitive economy. Everyone wants value for money. Colocation works at the underlying area of my value chain and the pricing is just cost plus.

Colocation is a price sensitive business and there is a lot of competition.

For us, 70 percent of our revenue comes from services that are not colocation. But, as we get into larger data centers, we may sell more colocation services, and this ratio may change.
Managed hosting services and cloud are high margin value and we have a large buffer of these services.

Many of the data center businesses closed down because they were offering only colocation. You also need to have a buffer of managed hosting and cloud services.
But globally, it is different – colocation is a high margin business.

Q. What are some of the services that you offer, apart from colocation (colo)?

Sunil: At the first layer, we offer colocation services. We are a Class-A Internet Service provider, and 90 percent of our customers take Internet bandwidth from us. The second layer of services is managed hosting, where we do complete solutioning, migration, consolidation and IT enablement for customers; we provide the entire IT infrastructure on Opex to the customers.

The third layer is cloud where we provide public cloud services to customers in different cities. And within public cloud, we provide compute, storage (object and tiered) and our cloud can have both horizontal and vertical scaling. And everything is self-serviced – the customer can come on my site and help himself – upgrade, downgrade etc. We also do private and hybrid cloud for customers.

And there is DR as a Service, a combination of public and private cloud, with automation.

And, then we have the IT management services. We are strong in this area – almost 600 of our people out of 1,100 are pure IT operations people. We also do remote IT management for customers in their own data centers and for NTT Com’s global customers.

So we can manage various aspects of IT operations for customers.

Q. Can you name some of the customers that you host in your data center?

Sunil: Flipkart is one of our largest customers. The largest e-commerce company in the world is also our customer. The largest pharma companies, like Abbott and Johnsons & Johnsons, are also our customers. We also host 7 – 8 private insurance companies from India. In banking, we have RBL as a flagship customer. India Infoline has been our customer for 17 years. And there are multiple world-leading brands such as Vodafone and Cisco.

Our sweet spot has been the SMEs and the startups and also the e-commerce companies. They want everything outsourced.

In fact most of the e-commerce companies in India are Netmagic customers.

Q. How many data centers do you have? How many do you plan to add this year?

Sunil: We have nine data centers out of which five are in Mumbai, two in Bangalore, one in Chennai, and one in Noida. DC 5 in Mumbai doubled our capacity. Our total capacity before DC 5 was 300,000 square feet and today we have 600,000 square feet in total for all our data centers. We have plans to add much bigger capacity than DC 5 in Mumbai itself, and similar capacity as Mumbai DC 5 in Bangalore.

Q. What is the total investment gone into DC 5 in Mumbai?

Sunil: It is approximately Rs 1,000 crore.

Q. What is your vision for the future of Netmagic Solutions?

Sunil: It’s really simple. We would like to have a good top line and bottom line. We want our customers and employees to be happy.
It has been really impressive in terms of orders, logos, and revenues. We have overachieved the target of 42 percent that we set for ourselves. And our profitability has increased.

And, we will certainly keep on making more high-quality data centers in India. Our managed services and cloud will also keep on kicking.


The writer was hosted at Netmagic Solutions and given an extensive tour of facilities at Data Center 5 in Mumbai.

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Brian Pereira
Brian Pereira
Brian Pereira is an Indian journalist and editor based in Mumbai. He founded Digital Creed in 2015. A technology buff, former computer instructor, and software developer, Brian has 29 years of journalism experience (since 1994). Brian is the former Editor of CHIP India, InformationWeek India and CISO Mag. He has served India's leading newspaper groups: The Times of India and The Indian Express. Presently, he serves the Information Security Media Group, as Sr. Director, Editorial. You'll find his most current work on CIO Inc. During his career he wrote (and continues to write) 5000+ technology articles. He conducted more than 450 industry interviews. Brian writes on aviation, drones, cybersecurity, tech startups, cloud, data center, AI/ML/Gen AI, IoT, Blockchain etc. He achieved certifications from the EC-Council (Certified Secure Computer User) and from IBM (Basics of Cloud Computing). Apart from those, he has successfully completed many courses on Content Marketing and Business Writing. He recently achieved a Certificate in Cybersecurity (CC) from the international certification body ISC2. Follow Brian on Twitter (@creed_digital) and LinkedIn. Email Brian at: [email protected]
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